Dpuc Targets Plant's Role

Cl&p May Be Told To Cut Rate Base

April 21, 1998|By SUSAN E. KINSMAN; Courant Staff Writer

The long-idle Millstone 2 nuclear power plant should be removed from Connecticut Light & Power Co.'s rate base, state regulators said Monday. But customers would receive credits toward future charges rather than lower rates.

Millstone 3 -- also shut down for more than two years -- was spared the same treatment in the draft decision. The state Department of Public Utility Control said it was persuaded that the restart of the newest and largest of the three Waterford reactors is imminent.

But the reprieve may be temporary. The regulators warned that if Millstone 3 is not back in commercial operation before July 1, it would no longer be considered used or useful and would be removed from the rate base automatically.

``The department and ratepayers have been more than patient, suffering through one missed restart date after another. The company must now bear the financial responsibility of any further delay,'' the decision said.

A final ruling is expected April 29.

In February, state regulators removed Millstone 1 from CL&P's rate base, a decision that reduced rates to customers by $30.5 million annually, effective March 1.

If the latest decision is approved unchanged, customers would no longer have to pay CL&P a 9 percent rate of return, depreciation or its remaining investment in Millstone 2. They would, however, be responsible for replacement power costs that are now excluded from rates.

The net effect would be a savings to customers of $3.1 million a month, or $37.7 million a year for Millstone 2, and $13.2 million a month, or $158.5 million a year for Millstone 3.

Rather than reduce CL&P's electric rates accordingly, the regulators ordered the savings to be applied to any expenses customers may be charged for replacement power related to the permanent shutdown of the Connecticut Yankee nuclear plant in Haddam in December 1996.

That issue is being decided by federal regulators and the total cost of the replacement power could reach $101 million by December. If customers are charged for the power and it is collected over one year, the cost would raise Connecticut's electric rates by 5 percent.

``The department believes it has balanced the interests of ratepayers with the needs of the company during this very trying time,'' said Glenn Arthur, the lead commissioner on the case.

``We are distressed by the draft decision and disagree with their assessment that Millstone 2 is not used and useful. We are making good progress'' toward restarting the plant, Beauchamp said, now expected by the end of 1998.

The decision would force the company to re-evaluate the Millstone 2 schedule and the work being done there. But more importantly, she said, the decision ``also puts in jeopardy our ability to meet our financial covenants.''

``We will start negotiations immediately with our banks to see if we can get some relief from some earnings-related covenants on those credit lines,'' Beauchamp said.

Although the decision would not reduce CL&P's cash-flow it would reduce earnings, which would trigger the restrictive covenants, she said.

John H. Forsgren, NU's executive vice president and chief financial officer, told state regulators earlier this month that restricting the company's earnings at the same time it is paying out millions for replacement power and shutdown expenses at Millstone ``would put serious pressure on our already thin margins.''

In 1997, NU estimated it spent about $700 million for replacement power and additional operating and maintenance costs at Millstone, up from $500 million in 1996.

But the regulators did not buy the argument. While the company would be ``challenged'' to meet the debt covenants, it could do so with aggressive cost-reduction measures, the regulators said.

``The company is not facing imminent default or acceleration of loan repayments for any of its credit facilities or long-term debt issues,'' the decision said. Aside from $40 million in notes expiring in June, CL&P does not face any refinancing of long-term debt issues in 1998.

Consumer advocates, such as the state consumer counsel and the attorney general, argued that regulators had little choice but to cut the non-performing nuclear plants out of rates.

``Maintaining these plants in rate base not only sanctions severe mismanagement, but practically rewards such waste by assuring that ratepayers continue to pay costs associated with these plants while they are inoperable,'' said Attorney General Richard Blumenthal.